Canada North – Supreme Court of Canada finds that a CCAA court can order a super-charge that has priority over a s. 227(4.1) deemed trust

The Crown challenged an order of the Alberta judge in CCAA proceedings regarding the Canada North group of companies that “priming charges” pursuant to s. 11 of the CCAA for counsel fees, costs of the monitor and financing charges of an interim lender would rank in priority to all other security interests and charges, arguing that this priority was contrary to s. 227(4.1). The Crown argued that (1) s. 227(4.1) created a proprietary interest in the debtors’ assets and a court could not attach a super-priority charge to assets that were not the debtors’ property, and (2) in any event, s. 227(4.1) created a security interest that had statutory priority over all other security interests, including super-priority charges.

Before rejecting both arguments in detail, Côté J, writing for herself and two other Justices, stated:

In all cases where a supervising court is faced with a deemed trust, the court must assess the nature of the interest established by the empowering enactment, and not simply rely on the title of deemed trust. In this case, when the relevant provisions of the ITA are examined in their entirety, it is clear that the ITA does not establish a proprietary interest because Her Majesty’s claim does not attach to any specific asset. Further, there is no conflict between the CCAA order and the ITA, as the deemed trust created by the ITA has priority only over a defined set of security interests. A super-priority charge ordered under s. 11 of the CCAA does not fall within that definition.

In elaborating on her first ground, she noted that, in addition to the “indeterminacy” of which specific assets were covered by the deemed trust, “the fact that assets subject to the deemed trust are indeterminate makes the trustee’s role effectively impossible to play”, so that there was no trust under Quebec Civil Law concepts. Similar considerations indicated that s. 227(4.1) did not create a trust that accorded with common law concepts.

In elaborating on her second ground, she indicated that there was an implication from the relatively narrow breadth of the definition of security interest in s. 224(1.3) (referenced in s. 227(4.1),) and also from the fact that s, 227(4.2) provided that “a security interest does not include a prescribed security interest” (which showed that in fact Parliament did not contemplate that the deemed trust had much life beyond what was included in the definition of security interest), that the s. 227(4.1) deemed trust was subject to the priority of the priming charges.

She also stated:

[C]ourts should still recognize the distinct nature of Her Majesty’s interest and ensure that they grant a charge with priority over the deemed trust only when necessary. …

In the concurring reasons of Karakatsanis J (writing for herself and another Justice), she agreed that s. 227(4.1) does not satisfy the requirements for a trust, and seemed to emphasize the importance of giving breadth to the discretion of a CCAA judge under s. 11 of the CCAA in order to “further the remedial objectives of the CCAA” and given that at the end of the day the final CCAA order should provide for payment of the source deduction amounts.

Neal Armstrong. Summaries of Canada v. Canada North Group Inc., 2021 SCC 30 under s. 224(4.1), General Concepts – Ownership, Statutory Interpretation – Interpretive/Definition Provisions and Interpretation Act, s. 8.1.